A pilot of the system earlier this year on one North London route saw 70 percent improvements in "excess waiting time" statistics.
GPS satellite technology feeds the location of the buses to a control centre over an Orange network. The control centre then sends the text alert to the driver's dashboard.
The system will be extended to all of Metroline's 1,089 vehicles over a two-year period. The project is costing the firm around £6m (US$10 m) and Sean O'Shea, commercial director at Metroline, described it as "probably the biggest IT project we have ever done".
O'Shea said that as well as improving the service for passengers, the technology will be key for Metroline being able to retain its contract with London Buses.
"We operate all services under contract to London Buses, so we can show London Buses we provide an excellent level of service," he said.
O'Shea said the text message alerts to drivers would not result in bus drivers pulling over to read the paper or racing through London streets at high speeds. He said that because the information is real-time it should prevent long gaps building up in the first place.
But where gaps do occur the alerts will allow drivers to use traffic lights by slowing down to make sure they hit red, or stopping at bus stops for a bit longer.
"They shouldn't need to pull over for five minutes," said O'Shea.
There are potential future passenger SMS services that Metroline will be able to launch based on the system. Passengers could receive bus arrival information direct to their handset by texting a short code, while the location-based technology can be added to displays at bus stops.
Silicon.com's Andy McCue reported from the U.K..